Question

A European put option with a strike price of $50 sells for $2. On the maturity date, the buyer can make a profit if:

A European call option with a strike price of $50 sells for $2. On the maturity date, the buyer can make a profit if:

Answer 1

A European Put option :

Premium paid for the option is $2.

The buyer of the put option will break even when the stock price is $48,

and will profit when the stock price falls below $48.

When the stock price falls to $47, the buyer if the put option will profit $1. The buyer of the put option will continue to profit as the stock price falls below $47.

The European call option has a premium of $2,

the buyer of the call option will break even if the stock price is $52.

If the stock price rises to $53, the buyer of the call option will profit $1.

The buyer will continue to profit as the stock price rises above $53.